Fed Chair Ben Bernanke survived the U.S. Senate vote for his reappointment, but it was touch and go for a while.
The vote was 70 to 30 - an unprecedented lack of support for a sitting head of the Federal Open Market Committee. The previous lowest level of support was for Paul Volcker in 1983. His vote was 84 to 16; much better than Bernanke's. Volcker failed to get support for another nomination however. He was out in the next term. Bernanke will be lucky if he lasts even that long.
Opposition to Bernanke first arose in the blogosphere and then spread through the politically activist communities on both the Left and the Right. Even with that, the senate might still have engaged in its usual rubber stamp support for the president's nominee for Fed Chair. The surprise upset in the Massachusetts special election for Ted Kennedy's seat indicated how angry the public was about the handling of the economy and that no Senator could expect automatic voter support this fall. The one-third of Senators up for reelection in November seemed particularly reluctant to support Bernanke. The White House had to get involved to salvage Bernanke's nomination. Without pressure from the President and Congressional leadership, he might have gone under.
The government PR machine has been trying to turn Bernanke's first term at the head of the Fed from the fiasco it has been into a great triumph. They came up with the tag line that 'he saved the U.S. from another depression.' Obama and a number of Democratic leaders repeated this outrageous claim over and over again. There is only limited proof that this might be the case. The U.S. economy still faces a depression or, at the very least, an ongoing recessionary period that could last for years. The White House and the Fed may indeed be oblivious to this idea, since they both seem to believe their own press releases rather than the hard evidence that indicates otherwise.
In truth, Bernanke is one of the most incompetent leaders the Fed has ever had. He failed to see the Credit Crisis coming, he failed to react quickly when it did, and when he did he took questionable actions that benefited Wall Street at the expense of Main Street. Bernanke's associates, Tim Geithner and Henry Paulson, the current and former Treasury Secretaries, also claim they did a great job handling the Credit Crisis and that they too saved the U.S. from another depression.
Why Obama submitted Bernanke's name for reappointment is indeed a mystery - at least if you believe his rhetoric about 'change you can believe in.' Bernanke was originally appointed by George Bush and is a Republican. Obama constantly complains about the big mess with the economy that George Bush left him to untangle. Yet, Obama renominates, with obsequious praise, the key architect of the Bush economy. Did he even look for someone else to fill the position? My guess is he didn't. The rap about why Senators should support Bernanke has included 'no one else would probably have done a better job handling the Credit Crisis' (an indirect admission that Bernanke didn't perform well) and 'someone else wouldn't be much different as Fed Chair.' While Washington is willing to accept mediocrity and substandard performance in top government positions, the American public seems to finally be getting fed up with Beltway incompetence.
Bernanke's loss of power is not just due to his poor handling of the economy and financial system. He is a complete contrast to the politically savvy Alan Greenspan, who survived for 19 years as Fed Chair, through both Republican and Democratic administrations. Bernanke seems to be politically tone-deaf. The Fed's actions at this month's meeting, which ended on Wednesday, included an announcement that it was closing down a number of its programs that provide liquidity to the system. Stocks gyrated wildly after the announcement and the market could easily have gone into a tailspin. Not exactly a wise move for a Fed Chair ever and particularly not smart the day before a vote for renomination where Senators are looking for a reason not to support you.
Bernanke also seems to have confused the idea that the Fed should be independent with the Fed should be above the law. This imperial view does not sit well with the American public. Bernanke's renomination will only further empower the forces that want to audit the Fed and reign it in. From now on, he is Barack Obama's Fed Chair and not George Bush's. Bernanke's reappointment is likely to be one more decision that President Obama will regret having made. And if he doesn't, the voters will probably make sure he does.